Italian Taxes if American and Self-Employed

I don't know about you, but when I left the states in 2003 I expected to kiss my retirement goodbye. I had no idea that there was such thing as international pacts between countries and totalization agreements so that you can still retire even if you live in another country. I found out last year by accident and now I am doing my best to get my ducks in a row so that I, too, can someday enjoy my golden years...

First thing to know about living and working in Italy: If you work for an Italian company, you will pay your social security, which is called INPS, here in Italy. This means that for most people there is no issue. You should still do your American taxes each year but you will probably be exempted from having to pay anything there because you can't be taxed twice and you will have paid more here than you would have paid there anyway.

Everything changes, however, if you are self-employed. Once you open a VAT number (Partita IVA), you need to check out the table below. Here is the link.  

Note: This is an agreement between Italy and the US. Each country has its own agreement, so take a look at the Social Security website to get your info if you are living abroad but in another country. The rules are probably different.

What I want to highlight here is that if you are a US citizen, you should pay into the Social Security system in America, and NOT IN ITALY if you are self-employed. You need to get yourself a certificate of coverage BEFORE you start working as a self-employed person, otherwise you will have big problems, like I am having now after paying into the wrong system for 6 years. OUCH! If you do pay into the wrong system, like I did, you need to start paying into Social Security and send a copy of your tax documents to Social Security so that they can then issue your certificate of coverage and you can use that to ask INPS for reimbursement (you can only go back seven years).

If you are a dual citizen (American & Italian), you can choose to contribute to either the US or Italian system. I would encourage you to contribute to the American system for three reasons.

1. You only need to make 10 years of contributions as opposed to 20 years in Italy to ensure a minimum pension. You have to wait until retirement age to collect, of course, but everything you pay over the minimum is good news for you.

2. If you are married to an Italian or any other person who has never paid into the American Social Security system, they have a right to a pension of their own, which is calculated as 50% of your pension. This means that if I receive 1000 dollars per month, my husband has a right to a pension of 500 per month in addition to my pension.

3. The American system pays more, especially if you decide to work PAST retirement age. I know you are full of energy, so this may apply to you. If you are doing well and retiring early on the other hand, more power to you, that is my goal too!!

Another thing to consider. It is better to collect social security from one country or the other, not both. Once the countries know that you are collecting from another country (and they know because countries talk to each other), they reduce your benefits by up to 50% on both sides. Just so you know.

Let me know if you have any other issues about social security you want me to address here and I will do my best to find out how things work for you. Otherwise, I will update you on my progress of getting my situation in order.

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Summary Of Agreement Rules

The following table shows whether your work is covered under the U.S. or Italian Social Security system. If you are covered under U.S. Social Security, you and your employer (if you are an employee) must pay U.S. Social Security taxes. If you are covered under the Italian system, you and your employer (if you are an employee) must pay Italian Social Security taxes. "Certificate Of Coverage" section explains how to get a form from the country where you are covered that will prove you are exempt in the other country.

Your work status	Coverage and taxes
You are a U.S. National working in Italy:
For a U.S. employer	U.S.
For an Italian (or other non-U.S.) employer	Italy
As a self-employed person	U.S.
You are a U.S. national working in the U.S.:
For an Italian employer	U.S.
As a self-employed person	U.S.
You are an Italian national working in the U.S.:
For an Italian employer (or Italian-controlled business)	You may elect either U.S. or Italian coverage (see "Election Of Coverage" section)
For a U.S. (or other non-Italian) employer	U.S.
As a self-employed person and you are a resident of the United States	U.S
You are an Italian national working in Italy:
For Italian employer	Italy
For a U.S. employer or as a self-employed person and you are a resident of the United States	You may elect either U.S. or  Italian coverage (see "Election Of Coverage" section)
You are a dual U.S./Italian national working in Italy:
In employment or self-employment covered under both systems	You may elect either U.S. or  Italian coverage (see "Election Of Coverage" section)
You are a dual U.S./Italian national working in the U.S.:
In employment covered under both systems	You may elect either U.S. or  Italian coverage (see "Election Of Coverage" section)
As a self-employed person	U.S
You are a third country national regardless of the employer:
Working in the U.S.	U.S.
Working in Italy	Italy